Developing Areas of Leasing and Environmental Social Governance
The field of real estate law and commercial leasing is established and well-tested. For this reason, most landlords and tenants that enter into negotiations with their legal team and real estate brokers are very familiar with the contract terms and the nuances that may permit revisions to the contract in any discussions. New areas of development are often the result of improvements to building regulations and codes, such as the progress in regulations toward more environmental efficiency in the built environment. An example of recent changes to building regulations and codes includes California’s Title 24 requirements regarding installation of LED lighting that has now become a common requirement in all new developments.
The drive for corporations to account for environmental issues and sustainability goals is an area where tenants are impacting real estate in a new way. Simply complying with the current code may not satisfy larger corporate tenants. The stakeholders within a corporation now include the environmental and sustainability team in addition to the risk management team. These teams often press for more assurance in the lease contract that a landlord will support and align with the tenant goals. How is this playing out?
Tenants may now be seeking details on the utility supplier that the landlord is contracting with and asking for assurance that the landlord will pursue, where available, the delivery of ‘green’ energy. In other instances, a tenant may demand the ability to contract directly for utilities to put in place sources needed to meet its corporate goals. The developing trade in carbon credits may be the next area that landlords will need to become familiar with when dealing with their largest tenants. Some initiatives have been adopted by landlords and these best practices are being shared. A good example of this can be observed in the way in which older assets are being refitted for the modern corporate tenant that include equipment with materially more efficient systems and computer-controlled climate zones.
There are now substantial examples of landlords which took up the opportunity to install on-site solar arrays using the leasing of equipment and power purchase agreements. Even in locations where less expensive abundant energy may be available, the corporate tenant internal stakeholder in the environmental and sustainability team will continue to press for further improvements from building ownership. This may require parties to commit to on-site vehicle charging or other infrastructure that, until now, has not been a major focus of the tenant community.
The property law addressing commercial real estate may be perceived as established and slow to develop, however successful landlords must still be willing to please their customers. How long will we have to wait to experience every multi-tenant project fitted with on-site charging for bikes and cars as if this were always available? This will arrive sooner than we anticipate. Who pays for these ‘green’ items will be issues for negotiation.
